Should I get an LLC or just umbrella insurance for Ohio rentals?

[Dennis Li]

Hi professionals and fellow investors!

I've just purchased my first property, and I have a question for Ohio state long term rental properties. I have just closed a 4-plex with tenants inside. All the tenants are recruited by the previous seller, so I don't know their credits and don't know their personalities. Now I want to protect myself from any potential lawsuits from them.

I'm debating between an umbrella insurance and a LLC. Here are my thoughts, and why suggestion would be greatly appreciated!!

1. Regarding annual cost, LLC is better. To get an umbrella that covers my net worth, it would cost me $600 more every year. Whereas Ohio states does not have renewal fee for an LLC, except a one-time setup fee of $99, plus a fee to get lawyer to setup and transfer deed for me for $1000 in total.

2. Regarding total potential loss, Umbrella is better. Per my understanding, if I have an Umbrella that covers my net worth, then even if I lose on a lawsuit, I will not lose any asset. However, losing a lawsuit may cost me the property, which is worth about $200K.

3. Regarding daily operating, Umbrella is better. I don't need to worry about anything with Umbrella, but for LLC, I need to follow the operation agreement and keep in mind not mixing personal and business bank account.

I'd like to know what are your thoughts, and how do you make decision in this case?

Thank you very much!!